ZEIT ONLINE has published the EU’s July 2, 2013 proposals for TRADE IN SERVICES, INVESTMENT AND E-COMMERCE in the TTIP negotiation. A copy of the proposal is available here. Tags: ISDS, TTIP
TRADE IN SERVICES, INVESTMENT AND E-COMMERCE
Chapter I General provisions
Chapter II Investment
Chapter III Cross border supply of services
Chapter IV Temporary presence of natural persons for business purposes
Chapter V Regulatory framework
Chapter VI Electronic commerce
Chapter VII Exceptions
The leaked text is 47 pages. Hard to imagine how the public can have a debate on these proposals without access to the actual text.
Here are a few notes.
The text defines investments very broadly, and specifically includes all intellectual property rights.
CHAPTER I GENERAL PROVISIONS
Article 1: Objective, coverage and definitions4 (p) ‘investment’ means every kind of asset which is owned, directly or indirectly or controlled, directly or indirectly by investors of one Party in the territory of the other Party5, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, the assumption of risk or a certain duration. Forms that an investment may take include:(i) tangible or intangible, movable or immovable property, as well as any other property rights, such as leases, mortgages, liens, and pledges;
(ii) an enterprise, shares, stocks and other forms of equity participation in an enterprise including rights derived therefrom;
(iii) bonds, debentures, and loans and other debt instruments, including rights derived therefrom;
(iv) other financial assets including derivatives;
(v) turnkey, construction, management, production, concession, revenue- sharing, and other similar contracts;
(vi) claims to money, or to other assets or any contractual performance having an economic value.
(vii) Intellectual property rights, as defined in Chapter Y of this Agreement [Intellectual Property], technical processes, know-how and goodwill.
Returns that are invested shall be treated as investments and any alteration of the form in which assets are invested or reinvested shall not affect their qualification as investments.
In Article 12, on the Treatment of Investment, paragraph (f) creates an action when an investor’s “legitimate expections” are not fullfilled, as regards “investment-inducing measures.”
Article 12: Treatment of Investment
f. A breach of legitimate expectations of investors arising from a government’s specific representations or investment-inducing measures; or
In the Article on Expropriation, an effort by a government to undertake a patent buyout would apparently be required to pay “the fair market value of the investment at the time immediately before the expropriation or the impending expropriation became public knowledge”, even if the patent buy was motivated to address a case of excessive pricing or another abuse. On the other hand, a compulsory license to use the patent, if compliant with TRIPS, “does not constitute expropriation”. One area of ambiguity concerns compulsory licenses when implemented as a limit on remedies, as opposed to an action under Article 30 or 31 of the TRIPS. Another area of ambiguity concerns compulsory licenses of pharmaceutical or agricultural test data, an area not addressed specifically in the TRIPS, in the same way that patents are addressed, or other sui generis IPR regimes, such as orphan drug exclusivity, or exclusivity associated with antibiotic drugs.
Another issues concerns the definition of expropriation, includes this EU proposal:
“indirect expropriation occurs where a measure or series of measures by a Party has an effect equivalent to direct expropriation, in that it substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or outright seizure.”
Since the investment chapter can be litigated by private parties, one has to wonder about all of the things that can be claimed under this definition. To what extend are price controls, regulations on promotion, sale or use of products, or other state interventions giving rise to claims of indirect expropriation? These issues will be sorted out under standards set out in an Annex, which compares the limits on the “the possibility to use, enjoy or dispose of the property” to “the Party’s right to regulate the use of property in order to pursue legitimate public policy objectives.”
1. Neither Party shall directly or indirectly nationalise, expropriate or subject to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as ‘expropriation’) the investments of investors of the other Party except:
- (a) for a public purpose;
- (b) under due process of law;
- (c) on a non-discriminatory basis; and
- (d) against payment of prompt, adequate and effective compensation.
For greater certainty, this paragraph shall be interpreted in accordance with Annex X on Expropriation.
2. Such compensation shall amount to the fair market value of the investment at the time immediately before the expropriation or the impending expropriation became public knowledge plus interest at a commercial rate established on a market basis, from the date of expropriation until the date of payment. Such compensation shall be effectively realisable, freely transferable in accordance with Article Y.10 (Transfers) and made without delay.
3. The issuance of compulsory licenses in relation to intellectual property rights to the extent that such issuance is consistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights in Annex 1C to the WTO Agreements (‘TRIPS Agreement’), does not constitute expropriation for the purposes of paragraph 1) of this Article.
4. The investor affected shall have a right, under the law of the expropriating Party, to prompt review of its claim and of the valuation of its investment, by a judicial or other independent authority of that Party, in accordance with the principles set out in this Article.
ANNEXES
Annex [ ]: Expropriation
The Parties confirm their shared understanding that:
1. Expropriation may be either direct or indirect:
- a) direct expropriation occurs when an investment is nationalised or otherwise directly expropriated through formal transfer of title or outright seizure.
- b) indirect expropriation occurs where a measure or series of measures by a Party has an effect equivalent to direct expropriation, in that it substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or outright seizure.
2. The determination of whether a measure or series of measures by a Party, in a specific fact situation, constitutes an indirect expropriation requires a case-by-case, fact-based inquiry that considers, among other factors:
- a) the economic impact of the measure or series of measures;
- b) the duration of the measure or series of measures by a Party or of its effects.
- c) the extent to which the government action interferes with the possibility to use, enjoy or dispose of the property;
- d) the character of the measure or series of measures, in particular in light of the Party’s right to regulate the use of property in order to pursue legitimate public policy objectives, such as protecting society, the environment, and public health, ensuring the integrity and stability of the financial system, promoting public security and safety, and promoting and protecting cultural diversity.
For greater certainty, non-discriminatory measures of general application taken by a Party that are designed to protect legitimate public policy objectives do not constitute indirect expropriation, if they are necessary and proportionate in light of the above mentioned factors and are applied in such a way that they genuinely meet the public policy objectives for which they are designed.